The gap between expiration opening price and SET

K

kalikahuna

So, yes, I got burned for not knowing my product well enough (this weekends post)

But, I'm just gonna chalk it up as a lesson I wont forget now.


Anyways, moving on....there appears to be a possibility for a significant gap between opening price on expiration day and SET for SPX...or any option...

So, the question is, How large can it get? I've found that it can be 8.95(gap between opening price and SET this past Friday)...but how much larger can it get? 10, 15, 20, 30?

Basically, if the gap can be 15...in order to be safe, you have to close out your spread if it gets within 15 of your position, instead of letting it expire worthless...which in some cases it might not be worth it to even enter the trade
 
Quote from kalikahuna:

..which in some cases it might not be worth it to even enter the trade
More...

Indeed. This is a much discussed topic on the SPX Credit Spread Trader thread.

Suggest use ET search for SET under Journals and you should find some posts of interest.

Asking how large SET can be doesn't make too much sense without a crystal ball though. However, you may get some indications from past data available on the CBOE website. In addition, there was a spreadsheet constructed on the SPX Credit Spread Trader thread which tracked this that you may wish to hunt down.

Good luck.

MoMoney.
 
Quote from kalikahuna:

So, yes, I got burned for not knowing my product well enough (this weekends post)

But, I'm just gonna chalk it up as a lesson I wont forget now.


Anyways, moving on....there appears to be a possibility for a significant gap between opening price on expiration day and SET for SPX...or any option...

So, the question is, How large can it get? I've found that it can be 8.95(gap between opening price and SET this past Friday)...but how much larger can it get? 10, 15, 20, 30?

Basically, if the gap can be 15...in order to be safe, you have to close out your spread if it gets within 15 of your position, instead of letting it expire worthless...which in some cases it might not be worth it to even enter the trade
More...

If my memory serves me right there was a 20 point or so gap a few years back. It's not that hard to look up, just get some historical data for SPX and SET and then look up expiration days.
 
Quote from kalikahuna:

So, yes, I got burned for not knowing my product well enough (this weekends post)

But, I'm just gonna chalk it up as a lesson I wont forget now.


Anyways, moving on....there appears to be a possibility for a significant gap between opening price on expiration day and SET for SPX...or any option...

So, the question is, How large can it get? I've found that it can be 8.95(gap between opening price and SET this past Friday)...but how much larger can it get? 10, 15, 20, 30?

Basically, if the gap can be 15...in order to be safe, you have to close out your spread if it gets within 15 of your position, instead of letting it expire worthless...which in some cases it might not be worth it to even enter the trade
More...

OK, I did some digging and found this:

On average, SPX has changed .59% up or down from April 1998 to May 2005, so that's about 7 points. That's the change between the SET value and Thu close.

For the September 2001 expiration, the SPX settled nearly 4.7% down from the previous day's closing price. That was a 49 point difference. In fact, the SPX settled at a price below the low of the SPX for the day.
 
geez! So, that means, every once in awhile, if you're on the wrong end of a credit spread (the call or put side)....you could totally get screwed...40+pts out...essentially max loss on your spread if you dont close it out.


So, does this mean that one should always close out and not let it expire, even if this means losing out on some profit?
 
most traders close out if shorts are within 15 or 20pts...however you have to remember that option exp sept 2001 was only one week after the market re-opened (if that..can't remember exactly) after 9/11....things were a bit nuts.
 
To me, it doesn't seem to matter what has happened in the past - just that it can happen in the future.

There's no reason to think that another 09/11 event couldn't happen, on SOQ Friday this time.
 
Yup. Got burned on this today. Had a few puts that were pretty good OTM heading into this morning. Well the SPX opened gapped down to 1877.94 (no problem there, puts were still OTM) however the SET was printed at 1866, lost 10k. Kind of surprised there was an aditional 11 points of gap between actual SPX open and the SET. I assume it's because a few stocks didnt have a clean open after the gap. Only SPXPM options for me from now on ... good lesson
 
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